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This Is Apple's Next Big Opportunity

The debate over whether Apple (NASDAQ: AAPL) is growing or slowing could go on all day.

On one side of the aisle are the enthusiasts who will point to Apple's market-leading innovative track record, its impressive $137 billion in cash, and the fact that it sold a record 47.8 million iPhones and 22.9 million iPads in its most recent quarter. Further, Apple's U.S. market share for the iPhone improved 3.9% from November 2012 through February 2013 to 38.9%, as Google's (NASDAQ: GOOGL) Android operating system sank 2% to 51.7%, according to comScore.

Source: comScore as of February 2013. Market share rounded to nearest whole figure.

The other side of the coin paints the picture of large numbers, which historically tells us that Apple's previously exponential growth rate is bound to slow. Evidence includes Apple's pared-back LCD orders from manufacturers such as Sharp in January because of tempered demand for the iPhone 5; ever-growing smartphone competition from the likes of Samsung, which grew its global market share from 19% in 2011 to 39.6% in 2012, according to research firm IDC; and its subservient position in the OS market to Google's Android on a global basis.

Regardless of which side you fall on, one thing is quite clear: Growth prospects for Apple are narrowing both in Europe, because of austerity measures enacted throughout the region, and in the U.S., where competition among cellular devices and operating systems is fierce.

That's why Apple must look elsewhere for its next big opportunity. We've already seen stellar results from overseas markets, with Apple delivering 67% revenue growth in China in its most recent quarter. That's largely why I think Russia offers Apple its next great frontier of growth.

The answer to Apple's woes If you think about it, Russia offers the perfect groundwork for Apple to build its presence. As of the third quarter last year, Apple's smartphone market share in Russia was just 7.2%, according to estimates by Russia's largest carrier, Mobile TeleSystems (NYSE: MBT) . That's up nicely from the 5.7% in the year-ago period, but it's still a long way from approaching Samsung and Nokia (NYSE: NOK) , which claimed 44% and 17.8% of Russian cell-phone market share in the corresponding period, according to my Foolish colleague Evan Niu.

The two primary factors that have held Apple back in Russia are a lack of a physical presence and the slow growth of Russia's own wireless infrastructure.

Building a franchise In the U.S., it's easy to understand why Apple grows so rapidly -- it has 250 physical stores. However, Apple has been rapidly expanding its physical presence in international markets, ending fiscal 2012 with 140 international stores spread throughout 12 countries.

Source: Brandon Daniel.

What's more, average revenue per store (across its entire network) increased 19% over the previous year, gross margins expanded 340 basis points, and, according to ifoAppleStore.com, its stores catered to 372 million visitors. This is why launching an iTunes store in Russia, as well as 55 additional countries in December, was an important stepping stone toward establishing its presence beyond just the United States.

Laying the infrastructure Russia's infrastructure has also been a tall order to overcome for Apple, because much of the country is still running on 2G technology. Even now, only Russia's most densely populated cities are running on 3G wireless technology.

The cellular-phone market in Russia is dominated by three operators: Mobile TelesSystems, or MTS, with 71.23 million subscribers as of Dec. 31; MegaFon, with 62.57 million; and VimpelCom (NASDAQ: VIP) , with 56.11 million. Beyond these three, Rostelecom, Tele2Russia, SMARTS Group, and Cellular Communications Motiv combine for 40.5 million subscribers. What this has led to is a cell-phone saturation rate of 161.3%!

Such a high rate has both positive and negative implications. It means that with most people owning more than one cell phone, growth prospects are limited for existing service providers such as VimpelCom and MTS. But it also means that as the wireless infrastructure in Russia is improved, these service providers can deliver an entirely new line of sales through upgrades -- possibly to Apple iPhones.

The reality of seeing this happen is actually quite good. In 2011, Yota signed a deal with many of the major Russian service providers to deliver 4G LTE-capable connectivity for mobile devices to 180 cities in Russia, servicing more than 70 million people, by 2014. This would greatly benefit Apple, which has been held back by Russia's slow transition to 3G and 4G networks, and could help to push Nokia -- which has historically dominated the 2G and 3G networking markets -- out of the picture.

Apple would make how much? Another way to look at this is to consider what would happen if Apple's market share in Russia resembled its global market share of 25.1%. Extrapolating Apple's "approximated" guess by MTS of 7.2% market share, this would mean that Apple phones are being used by about 16.6 million Russians (the overall market encompasses 230.5 million people). By simply bringing its market share up to its global average, Apple would sell an additional 41.9 million iPhones in Russia alone. If these phones were packaged with a contract at the current U.S. price of $199 each, Apple would be looking at $8.3 billion in additional revenue. Understandably, the iPhone is actually much more expensive in Russia, because few service providers subsidize its costs, but just imagine what would happen if they did even to a partial extent. That's what I call a blaring opportunity!

With Apple's easily recognizable brand image and history of innovation, it shouldn't be difficult to more deeply penetrate the Russian market beginning in 2014, when 3G and 4G networks proliferate. Providers such as MTS and VimpelCom are struggling to find pathways to growth, and a symbiotic "you scratch my back and I'll scratch yours" type of arrangement could help all parties involved.

Is Apple a sell or a belle? Find out now!There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues. Follow @TMFUltraLong